October 12, 2011
Authored by: Bard Brockman
On October 7, 2011, the FDIC filed a complaint against the former directors and senior officers of Alpha Bank & Trust (Alpharetta, Ga.), which was put into receivership on October 24, 2008. A copy of the FDIC’s complaint is available here. Alpha Bank & Trust (“Alpha” or the “Bank”) opened in May 2006 and operated for only thirty (30) months. Nevertheless, the FDIC estimates that the failure of Alpha will cause the Deposit Insurance Fund to lose $214.5 million.
According to the complaint, Alpha embarked on an aggressive growth strategy that focused on making risky loans in the acquisition, development and construction (“ADC”) and commercial real estate (“CRE”) sectors. The complaint also alleges that the Bank incentivized loans officers to generate loans, regardless of credit quality or loan performance, and that the Bank either disregarded or rejected warnings from regulators and third-party loan review consultants.
The complaint seeks to recover $23.92 million in damages directly tied to losses suffered on thirteen separate bad credits. The defendants were all members of the Director’s Loan Committee, and according to the complaint, they each voted to approve one or more of the subject loans. Their alleged failures and omissions included the following:
- failure to follow the Bank’s existing loan policies;
- failure to inform themselves and each other about the true nature and condition of the Bank’s loan portfolio;
- failure to adopt and enforce prudent underwriting procedures and appropriate loan-to-value ratios;
- approving loans to borrowers who were or who should have been known to be not creditworthy;
- approving loans to be made on an unsecured or under-secured basis;
- approving loans made on the basis of inadequate or non-existent appraisals;
- causing or permitting loans to be made without properly and promptly perfecting security interests in the loan collateral; and
- failure to exercise their duties to manage and supervise the affairs of the Bank in a safe, sound and prudent manner.
The complaint asserts a state law claim for negligence and a claim for gross negligence under FIRREA. Interestingly, the FDIC does not assert a separate state law claim for breach of fiduciary duty, even though it has consistently pled that claim in nearly every other D&O lawsuit to date.